Belgrano Freight Railway

Distressed

In 1999, Ferrocarril Belgrano Cargas was transferred through a 30 year concession to a consortium led by Union Ferroviaria. At the time, the ownership structure was as follows: Union Temporal (trade union) held 51% of the shares, Cooperativa Laguna Paiva 48%, and the government 1%.The initial investment commitments were estimated at US$250 million. Ferrocarril Belgrano Cargas had 7,300 km of railways serving 14 provinces, including Jujuy, Salta, Formosa, Chaco, Tucuman, Catamarca, La Rioja San Juan, Medoza, San Luis, Santiago del Estero, Cordoba, Santa Fe and Buenos Aires. In 2001, conflicts between the shareholders arose due to losses and lack of payment of government subsidies, and Cooperativa Laguna Paiva withdrew. Under the concession agreement, the operating consortium would receive a US$ 225 million grant over the next five years to modernize the railway system. Those resources were expected to cover all investment requirements in the railway. The concessionaires were not expected to invest in the project. Their role was limited to maintain the system and rehabilitate the facilities with the grant provided by the government. In 2003, the government began plans to restructure the company’s ownership composition from one in which the trade union had 99% and the government 1% (golden share) to another where private investors would have 79%, trade union 20%, and the government 1% (golden share). The primarily reason for such restructuring was the poor of financial and operational resulting that the concession arrangement granted in 1999 were producing. After a process to re-award the project failed, in December of 2005 Shima consortium gave the government an unsolicited proposal for a deal in which they would buy 73%. Shima is a Chinese-Argentine consortium formed between Sideco Argentina of Grupo Macri and Sanhe Hope Full Grain & Oil. Under the proposed deal, Shima would invest US$287.2 million (860 million pesos), the government would have to invest what it had agreed to in the 1999 concession, US$233.8 million (700 million pesos), and it would have to increase it stake to 12% while reducing the stake for the union to 15%. No decision had been made regarding Shima's proposal. In April of 2006, President Néstor Kirchner signed a decree declaring the Ferrocarril Belgrano Cargas to be in a state of emergency, which allows for the eventual takeover by outside investors. In July of 2006, the Argentine government gave a group of Argentine and Chinese investors and labor unions a 180-day management contract to operate the Belgrano Cargas rail network. The Shi Ke-Rong (Chinese) and Socma, Roggio and Romero (Argentine) group controls 68% of the new rail management company; and Union Ferroviario has been reduced to a 12% stake. The remaining shares have been distributed as follows: Argentine Government 10%, La Fraternidad (5%), and CGT 5%. In April 2013, Argentina's government established a state operator in charge of revamping the Belgrano Cargas railway line in a move that officially put an end to the tenure of private concessionaire Soesa. The new operator replaced concessionaire Soesa, which was initially sidelined by the government in October 2012, when a supposedly temporary state intervention was announced "in order to improve current operations." As the concession was never revoked, the decision paved the way for the definitive nationalization of the firm. Soesa, comprised of representatives of the public and private sector as well as union representatives, had been in charge of Belgrano Cargas since 2006, when the late president Nestor Kirchner transferred the railway's control after a failed privatization attempt. Over the years, the company turned into another political battleground for President Cristina Fernández to challenge political rivals such as Buenos Aires mayor Mauricio Macri and powerful unionist Hugo Moyano, both influential Soesa shareholders.